Mark Latham Commodity Equity Intelligence Service

Monday 13th April 2015
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MacroOil and GasAlternative EnergyPrecious MetalsBase MetalsSteel, Iron Ore and Coal


Brazil police to arrest seven more in Petrobras corruption probe

Brazil's federal police said it had issued seven arrest warrants on Friday in another phase of a corruption probe focused on state-run oil company Petrobras, as the investigation continues to move further into the political realm.

André Vargas, ex-congressman for the ruling Workers' Party and vice-president of the lower house, was among the seven wanted by police according to G1, the news website for media outlet Globo. The site also said a warrant had been issued for the arrest of Luiz Argolo, ex-congressman for the smaller opposition Party of Solidarity.

A multibillion-dollar kickback scheme uncovered at Petroleo Brasileiro SA, as the oilcompany is formally known, has shaken President Dilma Rousseff's government and threatens to further slow a stagnant economy.

The investigation dubbed "Operation Car Wash" has led to the indictment of scores of executives from Brazil's top builders and implicated dozens of politicians, the majority of them from Rousseff's Workers' Party, who allegedly received graft money.
MGL: A mere 543000 people took to the streets Sunday crying "Fora Dilma" (Dilma Out!), this the gov't sniffily noted was a reduction on the previous week.
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Here's all the cities where protests took place.
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The largest was in Sao Paolo, at 100,000.


Australian PGA expresses serious concern at reduced demand for gas

The Australian Pipelines and Gas Association (APGA) acknowledges that the Australian Energy Market Operator (AEMO) is no longer forecasting a gas supply shortfall for Australia's eastern markets.

'However, there must be serious concern that this change is caused primarily by a reduction in demand for gas,' APGA Chief Executive, Cheryl Cartwright, said today.

'A reduction in industrial and commercial demand for gas, particularly in New South Wales, must be of real concern to policy makers,' Ms Cartwright said.

'It seems this winding back of the manufacturing sector is the result, in part at least, of higher prices for gas or a tightness in supply. Australia's industrial sector continues to highlight the difficulties in accessing long-term contracts for gas.

'At a recent conference, the aluminium industry said 6,000 jobs depend on gas to fire Australia's Alumina smelters and Manufacturing Australia has highlighted the danger of losing more than 80,000 jobs if there is not sufficient gas brought to the domestic market.'
MGL: This fear of gas shortage in a country richly endowed with the stuff is amazing. 

China trade surplus slumps 62%

Chinese exports collapsed in March according to China's customs administration, adding to worries about the slowing economy.

China's exports fell 14.6 per cent on-year in March to 886.83 billion yuan ($A186.4bn), the government says, an unexpected fall and a further sign of weakness in the world's second-largest economy.

The fall in exports missed expectations by a wide margin. Analysts surveyed by Bloomberg had forecast an 8.2 per cent gain.

Imports also fell, declining 12.3 per cent to 868.67 billion yuan on-year, the General Administration of Customs said, while the monthly trade surplus plummeted 62.6 per cent to 18.16 billion yuan.

The imports also came in below expectations of analysts, who had predicted an 11.3 per cent fall.
MGL: We wonder how much of this is steel related.Image title
Chinese steel exports have fallen 23% since the beginning of the year as the boron export tariff changes force Chinese steelmakers to rethink their export strategy.  We pointed this out last december, and expected to see steel export disruption, which this data seems to be showing. In point of fact we were expecting the numbers to be worse. 

We can only infer that Chinese steelmakers have switched to low ferrochrome steels instead, that is quite positive for ferrochrome demand, thought there's little evidence for that demand in the Ferrochrome chart. 

Oil and Gas

China Q1 crude oil imports rise 7.5 pct to 80.34 mln tonnes - customs

China imported 80.34 million tonnes of crude oil in the first quarter of 2015, amounting to 6.52 million barrels per day (bpd) and up 7.5 percent compared to the same period of last year, the country's customs authority said on Monday.

It said that iron ore imports over the first three months reached 230 million tonnes, up 2.4 percent year on year, while soybean imports rose 1.9 percent to 15.63 million tonnes.

The figures were released ahead of a press conference. More detailed monthly import and export data will be issued later on Monday.
MGL: Final demand in China for Oil seems resilient. There's is no evidence of any particular change in response to price, but readers should note the rapid increase in Oil retail taxes which have softened the price fall at the pump.

Middle East state spending throws lifeline to oilfield services

Oil majors may have slashed capital spending but national oil companies (NOCs) in the Middle East and North Africa show no sign of cutting investment, buoying oilfield services that the stock market has beaten down.

But while offshore drillers and seismic companies continue to suffer, oil services stocks with chunky exposures to Middle East spending, such as Petrofac, have bounced back.

Petrofac's order backlog was up 26 percent at the end of 2014, and its share price has risen by almost 27 percent since it reported full year earnings on Feb. 25. Recent wins include a contract for the first phase of Kuwait Oil Company's Lower Fars heavy oil development programme and two strategic contract agreements with Algeria's Sonatrach.

"There is a building differentiation in the backlog profiles of those companies exposed to onshore construction in the Middle East and those not," said Mick Pickup, managing director at Barclays Capital. "While some of this is gas related, it signals a continued robust construction market in the region."

"The international oil company (IOC) has to make good returns for its shareholders, whereas the NOC has to keep the lights on for its domestic population," said Stewart Williams, vice president, Middle East research at Wood Mackenzie.

As well as needing energy for domestic desalination and air conditioning, the big Middle Eastern and North African producers require oil and gas for export. "Hydrocarbons might be the only way they can generate revenues," Williams said. "Even at these low oil prices they have no choice but to keep exporting and reinvesting in their own oil and gas industries."

Data from Rystad Energy show that while global investments are expected to fall by around 20 percent in 2015 versus 2014, in Gulf countries the reduction is likely to be just 5 percent. Saudi Arabia, where investment in oil projects is expected to grow by 5-10 percent, is thought to have ramped up the number of rigs it employs.

"You could speculate that the country is now building capacity," said Espen Erlingsen, an analyst at Rystad Energy.

Lamprell has a solid order backlog of $1.2 billion, with about 80 percent of revenues for 2015 already covered. Its shares are up almost 14 percent since it announced its full year earnings.

Moffat cited opportunities in the UAE, Qatar and Kuwait, with the drilling utilisation in the Middle East seen as pretty constant in 2015 compared with 2014.

"The NOCs are far less affected than the IOCs appear to be," he said, adding that the Middle East benefited from a relatively low lift cost. "If you're in a harsh, deepwater environment with a high lift cost of $70-$80 a barrel, nobody will proceed with that project in a $50 environment. But in the Middle East a lot of projects have $10 lift costs, and people can still make very healthy margins on them."
MGL: How much of this is inertia? More to the point:- how much is Saudi's race for gas?  There's also a bevy of Iraqi contracts moving into full swing, and Petrofac, for example, is working on the Badra field which announced a phase completion last week. Image title
Iraq is, once again, becoming a major factor in global Oil supply. Its partly Kurdistan exports returning at a decent clip, and its partly the much ballyhooed, but very long delayed, renaissance of its southern fields. The official target is 7mbpd. 

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The fixed fee nature of these contracts makes them comparatively immune to the fall in prices.  The West Qurna field alone adds in excess of 700,000bpd when current phases of construction complete.  There are the normal disputes ongoing between license holders and the Iraqi's on timing, payments, and details, but nothing seems likely to derail this progress right now, even ISIS has been stopped well to the north of the current major developments.

Jodi database shows Iraqi output at 3.2mbpd, growing just shy of 10% PA.


Latest China plan for emergency oil will hold 37 days of imports

China is seeking to hoard crude supplies equivalent to about 37 days of imports in its latest plan to build emergency stockpiles amid a collapse in prices.

The nation is planning facilities with capacity to store 232 MMbbl of crude in the third phase of its strategic petroleum reserve program, according to a deputy director at the National Development Reform and Commission’s energy research institute. The proposal is yet to receive government approval, Gao Shixian said in Shanghai on Friday.

The world’s second-biggest oil consumer stepped up purchases to fill its emergency supplies last year as benchmark prices plunged almost 50% amid a global supply glut. It currently holds reserves equivalent to about 30 days of imports, with the government seeking to boost that level to 100 days by 2020, according to state-run refiner China Petrochemical Corp.

The government has filled four sites that make up the first phase of its program with 91 MMbbl of crude, the National Bureau of Statistics said on Nov. 20. China finished building the facilities, which have a capacity of about 103 MMbbl, in 2009.

The second phase is designed to have capacity of 168 MMbbl, Shixian said. China imported an average 6.19 MMbpd of crude in 2014, customs data show.

Two of seven sites in the second phase were completed as of 2013, according to data from China National Petroleum Corp., the nation’s top energy producer. Four facilities with capacity of about 72.5 MMbbl may come online this year, Barclays Plc said in a report last week.

The nation’s crude demand may be boosted by 140,000 to 170,000 bpd day in 2015 and by as much as 190,000 bpd next year because of the need to fill strategic reserves, Barclays predicted.
MGL: Image title
China's Oil imports show a steady rise, and this ongoing strategic inventory build is near continuous. 

IEA on the Shale

MGL: MGL: IEA says "Oil market has changed forever" Sees the shale as 'swing' producer. Its a natural conclusion to draw, but largely ignores the amazing productivity gains which continue to drive breakevens lower. Also some comments on Russia on Iraq.

PGC Report: U.S. NatGas resources at record level

The American Gas Association (AGA), in coordination with the Potential Gas Committee (PGC), today released the PGC’s year-end 2014 biennial report: Potential Supply of Natural Gas in the United States. The new assessment finds that the United States possesses a technically recoverable natural gas resource potential of 2,515 trillion cubic feet (Tcf). This is the highest resource evaluation in the PGC’s 50 year history— a 5.5 percent increase of 131 Tcf from the previous record-high assessment from year-end 2012.

When the PGC’s results are combined with the U.S. Department of Energy’s latest available determination of proved dry-gas reserves — 338 Tcf as of year-end 2013 — the United States has a total available future supply that now exceeds 2,850 Tcf, an increase of 161 Tcf over the previous evaluation. The nation’s abundance of natural gas supports affordable prices for customers, bolsters U.S. energy security and provides efficiency and environmental solutions.

“These numbers underscore the fact that our nation can rely on domestic natural gas for our energy needs for years to come,” said Dave McCurdy, president and CEO of AGA. “This is great news for natural gas customers, who currently enjoy average savings of $693 per year per household. By investing in our energy future and advancing smart policy, customers can look forward to continued market stability and affordable prices.”

The future supply of domestic natural gas continues to grow due to the emergence and advancement of key technologies that are able to unlock gas production from reservoirs such as shale formations. For the next decade and beyond, natural gas supplies are expected to be high enough to support an increase in demand across all sectors – unlocking the door for expansion in residential, business, transportation and commercial and industrial applications – while providing continued savings.
MGL: Confirmation of what we already should know. There's no shortage of Natural Gas in the USA! Issue now is how much is actually commercial. 

This really has implications for the Shell/BG deal. Shell's assumption of something like $80 plus Oil is really an implicit bet on two market events:

1> Long term oil indexed contracts continuing to hold sway in the Natural Gas market.

Thats a tall order. All the long term contracts in Natural Gas have some kind of implicit exit clause triggered by large volume availability in spot markets. The most recently signed large gas contracts we've seen have some kind of Henry Hub element in pricing.

2> With the US in the process of building substantial export capacity of LNG, the influence of spot based Henry Hub continues to increase in global gas markets. Although we should not expect the full bevy of 250m mt of LNG from North America that implicit in plans and presentations, we do have 50m mt in construction, and another 20-50m mt that could make it to construction on present economics.  

      US shale gas is now impacting global LNG markets, and that substantial overhang of cheap conversion capacity at the FERC awaiting export licenses is not going away. Much of it is still economic. De Novo build is not, we readily grant you, but conversions of old import ports still represent the lions share of the FERC queue. 

 This data will surely provoke a further bout of political navel gazing in Washington as to how much gas the US can afford to export. Natural Gas at these prices threatens Alt-energy, so the political pressure remains favourable to a further bout of export approvals. 

European base observers still distrust the shale, and still cannot adsorp the changes it has wrought in the global gas landscape. Shell's bet is based on a view of the global gas market that now looks dated, and out of synch with the real world.


Inventory of uncompleted wells offers opportunities for some operators:

Faced with continued market uncertainty due to falling oil prices in late 2014, U.S. oil producers operating in shale plays, such as the Eagle Ford in south Texas, have built a large inventory of nearly 1,400 drilled but uncompleted wells (DUC) that are now driving the investment focus for many operators. The most promising of these wells belong to just a handful of operators in the play, giving them a likely advantage, according to new analysis from IHS.

The IHS Energy Analysis of Drilled, but Uncompleted Wells in the Eagle Ford Shale indicates DUCs can be converted to producing assets for approximately 65% of the cost of a new drill, significantly lowering the economics when evaluated against remaining costs.

When considering the productivity of the Eagle Ford DUC inventory, nearly 40% of the 1,400 DUCs are considered to have attractive economics (break-even costs below $30/bbl) and belong to a handful of operators, IHS said.

Those operators include BHP Billiton, Chesapeake, Anadarko Petroleum, EOG Resources, ConocoPhillips and Pioneer Resources. Thirty-three other operators account for the remainder.

“In this low oil-price environment, operators in the Eagle Ford and other U.S. shale plays are focused on optimizing the value of their assets and managing their costs, and these drilled, but uncompleted wells enable them to do that more effectively for several reasons,” said Raoul LeBlanc, senior director of research at IHS Energy, and the lead author of the DUC analysis.

“First, the drilling costs of these wells were already incurred by operators prior to 2015, and the completion costs—which comprise the majority of well costs—can be negotiated at a cheaper rate since completion crews are now both available and available at cheaper rates. Second, if completion costs are fairly consistent in the play, then it stands to reason that wells with higher production will yield better returns on capital.”

The DUC inventory is driven by the drilling sector outpacing the completion industry, the IHS analysis noted. As the rate of new wells drilled in the play falls, completion crews will be able to convert more wells to alleviate the DUC backlog.

Due to the shortened lead time of converting these drilled but uncompleted wells, and the lower incremental costs of generating production from a DUC well, operators are likely to be incentivized to work through DUC well inventories, IHS said.

Said LeBlanc, “Using a proprietary IHS ‘neighbor’ algorithm, which takes into account certain performance metrics of nearby wells, IHS found that the DUC inventory quality closely aligns with historical operator performance, so these companies have performed well in the past. However, in terms of future performance in the Eagle Ford, IHS estimates that BHP, ConocoPhillips and Pioneer Resources have higher-quality DUC wells than their current producing well portfolios, providing them the greatest available options going forward of any operators in the play.”  

To estimate the implication of these wells on 2015 production rates, IHS ran different conversion scenarios to assess the outcomes of bringing onstream 50, 100 and 150 DUC wells every month. Considering the need for a steady-state inventory of approximately 300 DUC’s at all times, the study found that roughly 1,100 DUC wells studied should be available for conversion. If the low-case conversion rate of 50 wells per month is achieved, IHS estimates that the DUC wedge (incremental) production would be 123,000 bopd at the end of a year, while a high-case conversion rate of 150 would result in a DUC wedge production of 269,000 bopd after 12 months.
MGL: This is just for the Eagle Ford. Grossing up that DUC number to US Oil shales gives a total of 5400 wells uncompleted, and using the EIA average of 400bpd per well suggests the Fracklog is now 2mbpd.  That in turn suggests that Oil shale production in the US may finally be in negative territory year on year.

If you take the EIA numbers of global oversupply at 1.7mbpd then it is likely that right now the Fracklog is sufficient to balance demand and supply:

Quick and dirty oil balance: (y0y, estimated)

Saudi +1
Russia +0.7
Iraq +0.3
Canada +0.6

US -2
Libya -0.5

The one obvious conclusion of the size of this Fracklog is that Q1 US E&P numbers look dire. (production down, price down).

It does suggest that the newsflow on Oil remains quite bullish as EIA numbers rattle down to reality. Their rig based estimates are too high, and the first revision of, perhaps, ,many was a negative -480bpd for January.


US rig count falls under 1,000 for first time since 2009

US rig count falls under 1,000 for first time since 2009

After noticeably slowed declines over the previous 2 weeks, the US drilling rig count fell 40 units to 988 rigs working during the week ended Apr. 10, settling under 1,000 for the first time since Sept. 11, 2009, according to data from Baker Hughes Inc.

Forty-one units went offline during the previous 2 weeks (OGJ Online, Apr. 2, 2015).

The count has fallen in 18 consecutive weeks, during which time it has plunged 932 units (OGJ Online, Dec. 5, 2014). The total of 988 is the lowest since Aug. 21, 2009, and 843 fewer units compared with this week a year ago.

Rigs engaged in horizontal drilling plunged 29 units to 770. Since Nov. 21, 602 horizontal units have gone offline. Rigs drilling directionally dropped 3 units to 90.

A 29-unit plunge to 427 rigs drilling in Texas led the major oil- and gas-producing states. Texas has now lost more than half of its rigs year-over-year, shedding 457 units.
MGL: Image title
Here's the 25 year chart of oil rigs, we still have some way to go on the downside.Image title
Natural Gas rig activity just made a downside breakdown on the 25 year chart. Now rig productivity has exploded in Natural Gas, so we're not sure yet whether this actually equates to a contraction in supply. But with associated gas from Oil wells now in severe decline (on the state data), and rig activity at these kind of levels, we must start to think about a major low starting to form in North American natural gas. 

Forest Oil Loophole Lures Second Energy Firm to Skip Bond Payout

Murray Energy Corp. is taking advantage of a loophole to avoid cashing out creditors of an acquisition target, the second natural resources company to try that approach within the last year.

Murray will acquire 34 percent of the voting rights in a parent unit of Foresight Energy LP as part of the $1.37 billion takeover, down from 80 percent previously envisaged, while maintaining a 50 percent economic interest in the company, according to an April 7 statement. By altering the deal that way, Murray will no longer take voting control of Foresight and says therefore it won’t trigger a put option that would have required it to buy $600 million of the target’s bonds at 101 cents on the dollar.

The change comes after Murray struggled to raise debt for the purchase and to gain approvals from existing bondholders to sell new securities. The deal echoes the strategy of Sabine Oil & Gas LLC, which revised terms of its acquisition of Forest Oil Corp. in the same way on the day the deal closed in December.

“The more often that this is done and successfully, the greater the likelihood that it will be done in the future,”Ross Hallock, an analyst at researcher Covenant Review, said in a telephone interview. “Even if a company tells them they’re going to get their 101 put, there’s still a chance in the future that they can change the structure to avoid paying.”

Covenant Review said in December that Sabine’s circumvention of the put option was one of just two examples of this tactic in nine years and that it might be “used as precedent for other issuers to think about this structure.”

One key difference between the Murray deal and Sabine’s takeover of Forest is that Foresight bondholders don’t stand to lose much money. Their $600 million of 7.875 percent bonds due August 2021 have been trading near par since late February, even before the Murray deal was announced last month, and have never dipped below 95 cents on the dollar. Forest’s $1.5 billion of bonds lost nearly half their value on Dec. 16 when Sabine said its new deal structure wouldn’t trigger the notes’ change-of-control provisions. Forest’s 7.25 percent bonds due in June 2019 traded at 20.3 cents on the dollar this week.
MGL: With Oil and gas prices this low there's no money for creditors, so this kind of ruse will always find interest.

Alternative Energy

Clean energy investment hits lowest level for two years in first quarter

Global clean energy investment in the first quarter of this year fell to its lowest quarterly level for two years, as large deals slowed in China, Europe and Brazil, research showed on Friday.

Investment in renewable energy such as wind and solar power and biomass fell to $50.5 billion in January to March compared with $59.3 billion in same quarter last year, Bloomberg New Energy Finance (BNEF) said in a report.

The last quarter to show weaker investment was the first quarter of 2013 at $43.1 billion.

The first quarter tends to be the weakest in terms of clean energy investment as banks and equity investors pause after a busy year-end and as project developers digest any changes in renewable energy support mechanisms.

But this year the strengthening of the U.S. dollar against many currencies also impacted financing and there were fewer large-scale wind investments compared with the first quarter of 2014.

Asset finance of utility-scale renewable projects fell 19 percent in the first quarter from a year earlier to $27.9 billion, while venture capital and private equity investment in clean energy fell by 21 percent to $1 billion, the report showed.

"There's a lot of ground still to cover this year. No one knows whether the oil price is going to bounce back or collapse further. There is good momentum towards some sort of climate deal in Paris in December," said Michael Liebreich, chairman of the advisory board at BNEF.

Geographically, clean energy investment in Brazil slumped by 62 percent to $1.1 billion compared with the first quarter of last year, while investment in Europe fell by 30 percent to $9.7 billion and China investment was down 24 percent to $11 billion.

On the other hand, clean energy investment in South Africa surged to $3.1 billion from almost nothing in the first quarter last year, and investment in India rose by 59 percent to $1.6 billion.
MGL: Reflex reaction here is that the Oil price , or rather its electricity generating brother - Natural Gas, collapse is having an impact on marginal economics.  Reality is likely more confused. We've largely lost Japan to grid mayhem, Brazil is as likely a cost of credit issue, China is the normal policy implementation mess as the faction fight intensified. EU subsidies are being continously pared back,  and in the EU we're likely at the point where all the obvious good alternative energy sites have gone.

The stocks, meanwhile, rallied hard on the creation of yield co's to monetise on balance sheet utility projects.

Precious Metals

NUM and Gold Fields agree 21% wage increase

South Africa’s National Union of Mineworkers (NUM) signed an agreement on Friday with Gold Fields for a wage increase of 21% over three years, it said on Friday.

The wage increase impacts entry level workers and will come into effect on April 1, NUM general secretary Frans Baleni told reporters. The lowest paid workers will receive 7,000 rand ($583) per month in the first year.

Gold Fields CEO Nick Holland said the wage increases reflected the need to retain and attract skilled workers at its South Deep mine, the only fully mechanized underground gold operation in South Africa.

South Africa’s Solidarity union, which mostly represents skilled workers in the mining sector, demanded a 12% increase from the Chamber of Mines on Friday.

The NUM, which represents 57% of the workforce in the gold sector, said in March it would ask for increases of up to 100% for its lowest paid members in the gold, coal and diamond sectors at wage talks due mid this year.
MGL: This surely has to ripple through to the Platinum sector. We're sneaking a glance or two at Umicore in Belgium, which is the third largest PGM producer quoted via its recycling business. 

Polyus Gold to pay 30% of net income in dividends

Russia’s biggest gold producer, Polyus Gold, said on Friday it planned to pay 30 percent of adjusted net income in dividends according to its new dividend policy.

The company also said its board had proposed a final dividend of 6.08 U.S. cents per ordinary share, or a total of $184.5 million for 2014.

Polyus will also consider paying a special dividend, subject to the group’s financial position, free cash flow, leverage and outlook, it said in a statement.

Under its previous dividend policy, the payout ratio stood at a minimum of 20 percent of annual net profit.
MGL: Its worth noting that in an almost directly opposite to Putin's diplomatic attempts to make Russia uninvestable,  Russia's corporates are moving in an equal and opposite direction to improve shareholder friendliness.  We've had a rash of dividends, and a level of exemplary Russian corporate behaviour which we just have never experienced. Now ok, lets ignore the Rosnefts and Gasprom's from this observation, but the steels, golds and other 'mid cap' resource counters in Russia seem to be all on best behaviour. 

Base Metals

China's first quarter Copper imports drop

In the first quarter of 2015, copper imports dropped 17.1 percent to 1.1 million tonnes from the same period last year, the data showed.

Many Chinese importers have reduced term shipments of refined copper for 2015 as they were uncertain whether they would receive credit for such purchases, traders said.

One trader at an international company said his firm's 2015 term shipments of refined copper to China would halve from last year.

Another trader at a Western supplier said his Chinese clients had scheduled more term shipments in the second half than the first half because of worries over weak domestic demand.

Many Chinese banks have cut credit for metals imports since the second half of last year after authorities investigated an alleged metals scam at Qingdao port in Shandong province. That has already forced many small trading firms that imported copper as a financing tool in previous years to close.
MGL: With electricity consumption down 6% year on year, a horrible copper import figure was always on the cards. We've seen a notable change in the mood music from Beijing in the last two weeks, with more supply side tax cuts and deregulation announced. So we think there's something of a cyclical lift in China demand going forward, but we still have a welter of rubbish data to wade through from the 'faction war' dominated quarter 1.

As rivers dry up, Chile copper mines fight for water

Alvaro Badillo remembers a time when his dad would take him fishing in the stream just a stone's throw away from the dusty streets of their small hometown of Caimanes in central Chile.

Now, like countless communities that dot the arid valleys north of the capital, Santiago, Caimanes is left with a dry riverbed.

For many in the town of 1,200 people, the answer lies just a few miles upstream: a 470 foot tall wall that stretches nearly a half-mile straight across the valley. It is the tailings dam for Los Pelambres, Chilean miner Antofagasta Plc's flagship copper mine, which holds enough leftover processed rock to fill some 140,000 Olympic swimming pools.

For its part, Antofagasta blames an eight-year drought in Chile for the evaporation of already slim water resources, and says the canals it built to redirect rain water have minimized the impact on the stream.

Both sides have findings that support their arguments and are thrashing them out in a court battle that could stop work at one of the world's biggest copper mines.

The clash illustrates the challenges facing leading copper producer Chile as communities and water-intensive industries such as mining try to coexist and vie for shrinking water resources.

"I believe Pelambres is one of the best examples, if we look at everything that has happened, to figure out the weak points in (our) legislation and the way to do things differently," Antofagasta chief executive Diego Hernandez told Reuters.

Accounting for about a third of the world's copper supply, with output this year expected to reach 5.94 million tonnes, Chile's domestic conflicts reverberate through the global market. Any prolonged disruption at Los Pelambres could tip a finely balanced copper market into deficit, boosting prices, analysts said.

The issue of water shortages and strained relations with communities is sure to be a topic of heated discussion among the world's biggest copper miners attending the CRU Copper conference in Santiago this week.
MGL: This Los Pelambres court case is critical to Antofagasta. We cannot entirely dismiss the thought that the court will go against Antofagasta and demand some kind of remediation. The Chilean courts over the last few years have not been frightened of delivering big judgments against the miners. Pascua Lima immediately comes to mind. 

Mick Davis first deal to land in Canada: report

Former Xstrata boss Mick Davis is said to be finalizing talks with a Toronto-listed miner, in a deal that could kick-off a long awaited buying spree by his $5.6 billion X2 Resources fund.

Davis, a driving force in the deal making that transformed the mining sector during a decade-long commodities boom, is also said to be mulling a bid for South32, BHP Billiton’s spin-off to be officially launched next month, Bloomberg reports.

“A deal in Canada could be a prelude to the bigger acquisition he’s been seeking for some time,” two people familiar with Davis’ plans told Bloomberg.

Sources added the most likely targets were Hudbay Minerals (TSE:HBM), Capstone Mining (TSE:CS) and Imperial Metals (TSE:III)

The sources added the most likely targets were Hudbay Minerals (TSE:HBM), Capstone Mining (TSE:CS) and Imperial Metals (TSE:III), all of which were trading higher Friday morning after the news.

Over the weekend, it transpired that the mining veteran might have approached Barrick Gold (TSE:ABX) for either acquiring some of the gold giant assets currently up for sale or a potential partnership, reported.

Earlier this year market rumours pointed to Davis considering Vale’s nickel business, which it is valued at between $5bn and $7bn.

Last year the 56-year-old South African allegedly tried (and failed) to pick up BHP’s unloved assets. He is also said to have approached Anglo American in November, trying to grab some of the company’s assets including copper mines in Chile, Brazilian nickel mines and a few coal operations.

The team behind London-based X2, which also involves former Xstrata finance director Trevor Reid, has stated it believes the firm could profit from picking up assets other companies, under financial strain of getting funds for ongoing projects, are forced to sell at very low price.

Davis’ war chest includes $4bn in committed equity that can immediately be drawn down and $1.6bn in conditional capital.
MGL: Who knows? We would just note that every rumour we have so far heard seems to involve either Chilean or Peruvian  mining assets. 

Steel, Iron Ore and Coal

China's Q1 coal imports fall 42 pct year on year

China's coal imports in the first quarter fell 42 percent on a year earlier amid tepid demand and tighter quality checks, customs data showed on Monday.

Imports by the world's biggest coal consumer reached 49.07 million tonnes in the first three months of the year, according to data from the General Administration of Customs. The preliminary import figure includes lower-grade lignite.

Imports for March came in at 17.03 million tonnes, up 11.6 percent on the previous month, but analysts said underlying demand eased after taking into account the shorter month and week-long Lunar New year holiday in February.

"We have seen an even weaker coal demand in March," said Zhang Xiaojin, an analyst at Everbright Futures in Zhengzhou.

Along with subdued demand, China's coal needs have been curbed by tougher environmental checks from Beijing to tackle air pollution.

China will boost efforts this year to reduce pollution and cut the energy intensity of itseconomy, which is expected to grow at its lowest rate in 25 years.

The National Development and Reform Commission (NDRC) said in its annual report in March that it would implement policies aimed at reducing coal consumption and controlling the number of energy-intensive projects in polluted regions.

"The rigid demand for coal is no longer there despite collapsing prices. Power plants no longer purchase extra coal, and traditional heavy consumers from the industrial sector are buying less amid economic slowdown," Zhang said.
MGL: Chinese coal imports represent the difference between two very large numbers. So the volatility of this series is intense, but the background music remains inimical to coal demand. Weak economy, strong alt-energy supply, leave coal demand at power stations feeble.Image title
10 year coal imports to China, descent from Heaven?

New owners halt coal output in India pending new mine permits

Mining at some coal blocks auctioned in India last month has been halted as the new owners including Hindalco Industries Ltd., Sesa Sterlite Ltd. and Monnet Ispat & Energy Ltd. await permits from regional governments.

Output is expected to remain shut for about four months, said Amitabh Mudgal, president at steelmaker Monnet Ispat, which won a mine in the central state of Chhattisgarh. Billionaire Kumar Mangalam Birla-owned Hindalco, another winner, stopped mining from April 1 pending permits and issues with the previous owners over transfer of assets, said two company officials familiar with the development, who asked not to be identified because they aren’t authorized to speak to the media.

“The auctions have led to a change of owners, which means a possible disruption in coal output for at least three to six months,” Neelkanth Mishra, managing director for equity research at Credit Suisse Securities (India) Pvt., said in an e- mail on April 10. “If there are evacuation problems from the block, then disruption could be for about two years. A few million tons of output could be impacted.”

In September, the nation’s top court canceled most of the 218 coal mines given away to companies for their own use since 1993, terming the allocations illegal and arbitrary. The stoppage belies the government’s commitment to ensure coal production isn’t disrupted as it adds power plants, roads, bridges and other infrastructure.

Prime Minister Narendra Modi, who swept to power in May last year, aims to boost growth to as much as 8.5 percent from 7.4 percent and attract foreign investments to Asia’s third- biggest economy.

“Mines where there are new owners are closed as they sort out issues on transfer of assets with the previous owners,” said Anthony Desa, chief secretary of the government of Madhya Pradesh, a central Indian state where some of the coal blocks are located. “There’s no difficulty from our side in giving approvals provided they meet all the norms.”

Producers of power, metals and cement won rights to 16 coal blocks that were offered in the nation’s first auction of coal blocks. With at least seven of these mines, having a combined annual production of about 8 million metric tons, coming to a halt.
MGL: India manages another own goal! We  dont recall any other example of a mine closure following change of control. Bullish for imports, and somewhat offsets the collapse in Chinese coal imports.

Australian Budget to suffer from iron-ore collapse

Australian Federal Treasurer Joe Hockey on Monday said he could have been “more prudent” with an iron-ore price forecast when announcing the mid-year Budget update, in December, and that he was factoring in a price as low as $35/t for next month’s Budget announcement. 

Speaking to the ABC TV from New York on Monday, Hockey said that there was no doubt that the falling iron-ore price would have an impact of Australia’s Budget, given that the commodity was the country’s largest export. “When we came to government it was hovering around $100/t. Now, it's close to $40/t. Everyone said that I was being way too conservative writing down the prices. I'm glad I was prudent, with the benefit of hindsight I could have been even more prudent.” 

In the December mid-year Budget update, the Treasury used a $60/t estimate for iron-ore prices. Hockey also told The Australian Financial Review that the government was contemplating an iron-ore price as low as $35/t, which meant that $25-billion in revenue could be lost over the next four years.
MGL: Australia is managing its descent from the boom with unexpected equanimity. Its not just the currency that is responding, capex is collapsing and mines are closing.  This is a proper market orientated economy, compare and contrast with many emergers who seem to be rushing out state life rafts to prop up capacity which by all rights should close.
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